Photo: Wikimedia Commons
Ireland announced negative GDP figures for the second quarter today and now is on the brink of a double dip recession, according to The Telegraph.The country’s GDP growth rate fell to a negative 1.2% in Q2, down from 2.2% growth in Q1. It takes two or more quarters of consecutive negative growth for a recession to be declared.
Ireland has aggressively confronted its budget deficit through austerity programs recommended by the ECB and European Union. The result of those programs has been a decline in the country’s deficit, but it now has the added side effect of declining growth.
While the double-dip recession might be the headline concern right now, what is more unnerving is that Ireland may have to engage in more cuts to confront its loss in tax revenue that is certain to result from the economy slowing down.
And this is, at its core, the problem with austerity in the European Union. If member states cannot devalue their currencies while making spending cuts, they are left with a reduction in employment and no increase in competitiveness. Therefore, employment will not tick up and tax revenues may actually decline making the situation worse for the state.